Property Inspection Waivers: Are they worth the risk?
If you're getting a loan for a home, your lender may give you the option to use a Property Inspection Waiver – or PIW – on your application. The program, initiated by Fannie Mae in 2017, allows you to be approved for a mortgage without an appraisal. It's a newer concept, and some lenders love it. But what caused it, and what risks are associated?
How do PIWs work?
Basically, deciding what your home is worth falls into the hands of your lender. They determine its value systematically on a computer, using a database from Fannie Mae instead of hiring a local appraiser to inspect the home you're about to buy. So, rather than a firsthand evaluation, lenders rely entirely on computer methods to sort through an array of previously collected data.
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Who can get a Property Inspection Waiver?
The program is currently limited, but it's including more types of transactions regularly. Your home has to have records in Fannie Mae's electronic database, so homes which have never been appraised are not eligible for a Property Inspection Waiver. What's more, you're required to have an excellent credit score and high assets for approval.
Why do lenders use Property Inspection Waivers?
The waiver omits appraisal charges, and it can trim closing time substantially for buyers. Outwardly, this streamlined process sounds like a good deal — but there's a crucial point you'll want to keep in mind. With a PIW, your lender is NOT held responsible if the assessment turns out to be wrong. That's a bonus for lenders, but a disadvantage to the home buyer.
What could happen if I agree to a PIW?
The information in Fannie Mae's database is derived from past appraisals done by professional appraisers. it might be accurate to a degree, but it won't necessarily be a current evaluation of the quality of a building that changes over time. Without a professional appraisal of your home, recent improvements, renovations, or damages can certainly be omitted by the system.
Because of these deficiencies, you can imagine an instance where your property is priced too high by the computer program assessing it. If that happens, you could run into problems when it's time to put it back on the market. You may not be able to get what you paid for it, and you'll have no recourse against your lender when the money falls short.
What is the bottom line?
A definitive appraisal usually costs a few hundred dollars, but it can save you a substantial amount more in the future. With a Property Inspection Waiver, there is absolutely no guarantee you're getting an honest valuation of your most expensive asset.
Gregory James Company, Inc. can help.
Buying or refinancing a property is a big decision with grand consequences. You demand to know without a doubt that you're receiving a fair deal, and working with a licensed appraiser is the safest action you can take. Computers and algorithms are in nearly every area of modern life, but when it comes to measuring the value of your property, nothing is more precise than the careful assessment of a licensed professional you trust.